Law to Cut Deficit May Boomerang : Reagan’s Defense Policies Periled by Gramm-Rudman

The deficit-cutting Gramm-Rudman law, enacted by Congress last year with the Reagan Administration’s somewhat apprehensive support, is becoming a budget boomerang that threatens to strike down President Reagan’s cherished pro-defense policies.

Under the law’s directive to hack about $40 billion from next year’s projected deficit, a bipartisan majority of the Senate and a Democratic coalition in the House have approved budgets that call for modest tax increases and drastic reductions of Reagan’s own request for 8% after-inflation growth in defense spending. Social programs for the poor, by contrast, largely escaped the congressional budget ax.

Pressure on Congress

Lobbyists for social programs for the poor said their worst fears--that the Gramm-Rudman law would lead to the enactment of Reagan’s proposed domestic spending cuts--have not been realized. They even concede that the law may help their cause.

“As much as I was opposed to Gramm-Rudman,” one said, “it finally seems that Congress is feeling more pressure to take its own direction.”

On the other side of the ideological fence, a Republican veteran of congressional budget struggles said Reagan “is heading for the worst of all possible worlds--no domestic cuts and defense cuts (instead). Never has a President’s own budget in the last 20 years been so irrelevant.”

Merely a Blueprint

At this stage, however, almost no one is writing off Reagan’s ability to ultimately get his way on this year’s budget, and some believe the real battle is yet to come. Even after the House and Senate agree on a compromise version of the budget, Congress will have to enact appropriations and tax bills to meet the budget’s spending and revenue targets. The budget itself is merely a blueprint, not a schedule with the force of law.

Although the White House has refused to negotiate with Congress over the budget itself, which is not subject to presidential veto, Reagan will have a later opportunity to exert his will--and his veto power--over those appropriations and tax bills. “He could really get nasty if he wants to,” one executive for a major defense contracting firm said.

Reagan wasted no time taking the offensive. In his weekly radio talk Saturday, Reagan warned that “much of what we achieved is now in jeopardy” because the House has passed a “wholly inadequate” military budget.

Speaking at Ft. Myer, Va., before about 125 members of the Armed Forces Honor Guard on Armed Forces Day, the President said the House budget is “a breach of faith with our armed forces and our allies and would send exactly the wrong signal to the Soviets and their satellites.”

$144-Billion Target

If Reagan vetoes legislation to implement Congress’ budget, the 1987 deficit would almost surely rise above the Gramm-Rudman law’s $144-billion target. And if that happened, the law would trigger automatic spending cuts, half from defense and half from domestic programs, of sufficient magnitude to reach the target. The cuts would take effect on Oct. 1, when fiscal 1987 begins.

Many lobbyists are skeptical that Congress would allow those reductions--certain to outrage large groups of voters--to be made only weeks before this fall’s elections.

“They make (laws), and they break them, and they can ignore that $144-billion target if they want to,” the defense contractor said. Although his own business would be subject to the most severe of the law’s automatic cuts, he said he is not worried that Congress would “absolutely disembowel the defense of this country over meeting some artificial deficit level that’s been set.”

And all bets are off if the Supreme Court, which is hearing a constitutional challenge to the Gramm-Rudman law, overturns its automatic spending cut provision. In case of such a ruling, the law provides that Congress may still put the across-the-board spending cuts into effect by voting for them.

Sen. Lawton Chiles of Florida, the Senate Budget Committee’s senior Democrat, acknowledged that “there are some people who believe very strongly that the House and Senate would never pass (the cuts) themselves.”

Could Surprise Skeptics

But he said Congress could surprise the skeptics. Caught between enacting politically explosive spending cuts and abandoning the deficit target that would give it claim to fiscal responsibility, Chiles said Congress could approve the cuts and put Reagan in the position of having to sign them into law.

Chiles said Congress’ strategy might be: “Let’s roll this down to the President. Let’s make somebody else blink.”

It was just this sort of a political “blinksmanship” that Gramm-Rudman was designed to create. The bill was conceived by Republican Sens. Phil Gramm of Texas and Warren B. Rudman of New Hampshire last year after an unlikely alliance of Reagan and congressional Democrats blocked Senate Republicans’ efforts to reduce the deficit through a tax increase and Social Security cut.

“I made the statement then that I will not go through this kind of thing again,” Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) recalled. He said he was tired of trying to lower the deficit by “cutting around the edges.”

Regan Sold Approach

Reagan was reportedly sold on the Gramm-Rudman approach by White House Chief of Staff Donald T. Regan.

“When they jumped on board the Gramm-Rudman bandwagon, they were jumping before they looked,” said California Rep. Leon E. Panetta (D-Monterey), who was closely involved in the negotiations that produced the ultimate bill. “They made the initial commitment and they had to stick with it,” even when it became clear that Reagan’s own spending priorities could fall victim to the law.

Now the Administration’s worst fears appear to be coming true. Robert Greenstein, director of the Center on Budget and Policy Priorities, an advocacy group for social programs, said Gramm-Rudman “emboldened” members of Congress to oppose an enormously popular President and endorse higher taxes and lower defense spending.

Both the Senate and House versions of the budget do not raise taxes dramatically, relying instead on a variety of measures such as a permanent extension of the 16-cent-a-pack cigarette tax to boost revenues about $13 billion. And the overall tax burden could well drop for most Americans if legislation revising the income tax code becomes law.

Reagan and Congress are more likely to clash over spending issues. Greenstein said that Gramm-Rudman austerity paradoxically made Congress willing to increase funds for some social programs that the Administration had persuaded Congress to slash in previous years. By setting a specific deficit-reduction target, he said, Gramm-Rudman allowed Congress to make room in the budget for such items as a provision in both the House and Senate budgets to expand Medicaid coverage for pregnant women and infants.

Catchall Bill Likely

If past years are any guide, the new fiscal year will probably arrive before Congress has enacted all of the spending bills required to implement its budget. That will force Congress to approve a catchall spending bill to finance the agencies whose regular appropriations are late--and that bill in turn will become a prime target of Reagan’s possible veto strategy.

But even there, Reagan’s options seem limited. White House officials say Reagan will be reluctant to risk a public confrontation so close to the November elections, which will determine whether Republicans retain control of the Senate. “We’re not going to wind up picking a major fight with Senate Republicans,” said an Administration adviser who spoke on the condition he not be identified.

White House officials have privately begun to concede that Reagan, for all his public intransigence, may eventually be forced to swallow higher taxes and defense cuts.

“Congress has to have the guts to go ahead,” the Administration official said. “They’ve put too much pressure on themselves to walk away from it now.”

Times staff writer Eleanor Clift also contributed to this story.

REJECTING REAGAN’S BUDGET President Reagan’s proposed fiscal 1987 budget, contrasted with the budgets approved separately by the Senate and House. New taxes Reagan: $5.9 billion through a variety of minor tax changes Senate: $13.2 billion through unspecified changes in tax laws House: $13.2 billion through unspecified changes Defense spending Reagan: $320 billion, or an after inflation increase of about 8% above the 1986 level Senate: $301 billion, or roughly no increase except to compensate for inflation House: $285 billion, or about $16 billion less than needed to maintain inflation-adjusted spending Domestic spending Reagan: Terminates 44 programs and saves $24 billion from 1986 levels, after adjusting for inflation Senate: Terminates only one program--revenue sharing--and cuts domestic programs by about $12 billion House: Terminates only revenue sharing and cuts about $12 billion Total spending Reagan: $1,010.3 billion Senate: $1,001.2 billion House: $994.25 billion Total revenue Reagan: $849.9 billion Senate: $857.2 billion House: $857.2 billion Deficit Reagan: $160.4 billion Senate: $144.0 billion House: $137.05 billion Source: Congressional Budget Office, Senate Budget Committee